The Bank of Thailand is primarily concentrating on domestic factors when contemplating changes to its policy rate, rather than reacting to the recent rate cut by the US Federal Reserve, as stated by the central bank’s governor.
During a symposium held by the central bank on Friday, Governor Sethaput Suthiwartnarueput explained that the Monetary Policy Committee’s decisions are founded on three main domestic elements: economic growth, inflation, and financial system stability.
These considerations are integral to the central bank’s outlook-dependent monetary policy approach, he added.
Regarding the outlook, both economic growth and inflation are in line with the central bank’s current evaluation. The Bank of Thailand is also monitoring fluctuations in the baht, especially in relation to the dollar, and is prepared to intervene if necessary.
However, credit tightening across the financial sector has accelerated more than anticipated, primarily due to increased credit risk linked to worsening asset quality.
In response to the Federal Reserve’s 50 basis point rate cut on Wednesday, Mr. Sethaput noted that the market largely anticipated this decision, with investors in money and capital markets already adjusting to this change.
He mentioned that the Thai economy would not face significant repercussions from this rate adjustment, even though the baht has appreciated as the US dollar weakened.
“While the baht’s movements are consistent with regional currencies, it has exhibited more volatility against the dollar compared to its peers,” Mr. Sethaput remarked. “Currently, the baht’s strength against the dollar more closely resembles the South Korean won rather than the Malaysian ringgit or Indonesian rupiah, as was previously the case.”
When comparing volatility rates of Asian currencies against the dollar year-to-date, the baht’s volatility is 7.5%, followed by the South Korean won at 7.2%, the ringgit at 5.8%, the rupiah at 5.5%, and the Philippine peso at 4.7%.
The baht has appreciated by 2.4% against the dollar, ranking second only to the ringgit, which has experienced an 8% increase.
The Singapore dollar and the Indonesian rupiah have risen by 1.9% and 0.8%, respectively, while the South Korean won, Taiwanese dollar, and Philippine peso have depreciated by 4.3%, 3.1%, and 0.5%, respectively.
Mr. Sethaput highlighted that the baht shows a stronger correlation to gold prices compared to other regional currencies.
With global gold prices reaching record levels, the baht’s value has been significantly influenced, unlike its regional counterparts.
The central bank will continue to monitor the baht’s volatility, particularly against the dollar, and remains ready to act if necessary, Mr. Sethaput affirmed. However, they are generally unconcerned since the baht’s fluctuations are primarily driven by the dollar’s decline.
“In light of the increased uncertainties in the money and capital markets, we are also observing potential speculative factors arising from hot money flows, but we do not perceive any substantial risk,” he stated.
Foreign capital outflows from Thailand’s bond and capital markets have shown improvement this year compared to 2023.
Net foreign capital outflows amounted to $9.9 billion in 2023, but this year-to-date has decreased to $2.2 billion, according to Mr. Sethaput.
